Out of state investment in the Colorado marijuana business.

The State of Colorado has introduced a bill regarding marijuana ownership rules. SB 16-040 has passed the Colorado House and Senate and is now awaiting signature by the Governor. These changes would impact any new applications occurring on or after January 1, 2017. The changes apply to both medical and retail licenses.
These changes are generally beneficial to marijuana business owners, since they would allow marijuana businesses to obtain more funding from out of state lending sources. The bill creates three types of funding relationships: direct beneficial interest owner, indirect beneficial interest owner, and qualified limited passive investor.

Direct Beneficial Owner:
A direct beneficial interest owner is a person who owns part of the business. This could include members, managers, officers, and directors. Businesses can have as many direct beneficial interest owners as needed as long as the individual has been a resident of Colorado for at least one year. Non-residents can be direct beneficial interest owners as well, but need to receive a finding of suitability from the MED. Such investors include institutions like banks and insurance companies.

Indirect Beneficial Owner:
Indirect beneficial interest owners are permitted economic interests, and would include situations like intellectual property royalties, employee profit sharing, or institutional investors. Businesses may take advantage of qualified limited institutional investors, but those investors may own only 30% or less of the marijuana business. The bill does not specifically provide for the residency requirements of indirect beneficial owners, but it is likely that the MED will use a standard similar or less rigid than that for direct beneficial owners.

Qualified Limited Passive Investor:
Qualified limited passive investors are passive investors with less than 5% share in the business. The state licensing authority will run a limited background check on these individuals, and may conduct a more thorough investigation if needed. The MED will create regulations regarding these individuals, and the specific qualifications are not included in the bill. The intent is for these to be the most minor form of investor, presumably requiring the least review and lowest requirements. These investors must be United States citizens, but do not need to have any Colorado residency.
These three categories will allow new businesses to receive startup funds from out of state investors and be generally more permissive of different ownership structures. The hope is that this will benefit Colorado businesses and reduce the amount of illegal out of state money introduced.

Conclusion:
The opportunity for out of state investment is beginning to open up. Since this is new, it is likely that the MED will struggle with defining the above categories and the approval process. As always, proceed with great caution and a conservative approach to such investment.

Be sure to read the full proposed changes here:
http://www.leg.state.co.us/Clics/clics2016a/csl.nsf/fsbillcont3/53F678C55E0B703987257F2400644D67?Open&file=040_enr.pdf

Marijuana DUI, do’s and dont’s

During the holidays DUI enforcement increases dramatically. Unfortunately, this large net will inevitably capture cannabis users who were not driving while impaired. As most of you know, in a last minute political compromise, the Colorado legislature passed a marijuana DUI law that creates an inference that a person with 5 ng. of THC in their blood is DUI. Such levels are common, even considered low, for regular cannabis users.

Moreover, the 5 ng. threshold is dubious science at best and, in many scientific circles completely wrong. These cases are defensible on many levels including attacking the science of a 5 ng. threshold and also whether cannabis even impairs driving at all.

However, an ounce of prevention is worth the expense of mounting a defense. Here are some tips to help you or your friends who use cannabis:

1. Do not travel with cannabis in the car. The smell of cannabis is the most likely cause of the police officer’s suspicion;
2. If you do travel with cannabis in the car, place it in a scent proof container (glass or other such container) in the trunk. It is illegal to have cannabis in an open container in the car and the police have a right to search your car if arrested;
3. Do not smoke in the car;
4. Do not consent to a search of the car;
5. Do not admit to consuming cannabis. If the officer presses you, tell him or her,“I have friends that are attorneys and they have told me not to answer these types of questions.” Do not lie. Simply repeat this phrase. Most juries will hold the lie against you, but may also have heard you should not answer these types of questions;
6. Do not do roadside tests. They are voluntary and you will not lose your license if you refuse. This includes the “following the pen with your eyes test.” The police will not be fair in evaluating your performance and it will be used against you; and
7. You do not have to do the blood test. However, if you refuse the DMV will take action against you for refusing. This action includes two months of no driving (not for work, the doctor or any other reason). You will get your license back after two months, but you must have an ignition interlock on your vehicle for two years. It only tests for alcohol, but it is expensive and a real pain in the rear. Additionally, you will need SR-22 insurance for one year and you will have to complete 12 alcohol and drug classes. Finally, please be advised that if you refuse the blood test the fact that you refused CAN be used against you at trial.

Finally, there is one important and creative way to protect yourself if you regularly use cannabis. Go to your primary care doctor and request a blood test that includes testing for THC. Then take the results back to your doctor and ask him or her if they believed you to be impaired when you made the request. Let the doctor know you just came from work or some other task in which you were fully functional. See if the doctor will confirm, in writing, that despite your positive result for THC you were not impaired in their medical opinion. This will provide you with a baseline for your normal THC level and that you were not impaired at that level. Then, if you take a blood test in the context of a DUI charge, you will have a baseline upon which to defend yourself. Perhaps you could ask a co-worker or friend to confirm that you were not impaired in the time just before or after the blood test.

Expanded Plant Count – Proceed at your own risk!

First, marijuana, medical or otherwise, remains illegal under Colorado Criminal Law. The protections afforded by Amendment 20 and 64 are interpreted by the Court to provide for an affirmative defense to felony prosecution. Only the strictest and narrowest compliance with either Amendment 20 or 64 stand a chance of acquittal at felony trial.

I. No sales of marijuana are permitted.

At the outset it must be stated and clearly understood that there can be no sale of marijuana, medical or otherwise, except by licensed marijuana businesses under the direct supervision of the Department of Revenue, Marijuana Enforcement Division. Any sale, even a single joint, constitutes a felony to which there is no defense whatsoever. “Donations” and other devices designed to disguise the fact of a sale have proven useless. Indeed, the fraud of such a device is usually what causes the remaining defenses to fail.

A primary caregiver also cannot sell marijuana to his or her patients. A primary caregiver may only charge the cost that it takes to produce the marijuana on two ounce basis. The medical marijuana program contemplates that the primary caregiver has significant responsibility for the wellbeing of the patient and is doing this service primarily for compensation. The law only permits recouping of costs and not profit.

II. Exception to criminal law defense.

Second, a patient or primary caregiver is afforded a greater defense, “exception to criminal law,” when the person cultivates 6 plants (3 in flower and 3 in vegetative state) and possesses two ounces. All marijuana product greater than 2 ounces must be immediately destroyed. Otherwise, the person commits the felonious crime of either possession of marijuana or possession with intent to distribute marijuana. Typically both felonies are charged.

III. Medical necessity defense.

For cultivation of more than 6 plants, in this scenario 99 plants per property, the patient or primary caregiver “may raise as an affirmative defense to the charges of violation of state law that such greater amounts were medically necessary to address the patient’s debilitating medical condition.” Colorado Constitution, Article XVIII, Sec. 14(4)(b). This is a medically based affirmative defense in which the Defendant is required to prove by a preponderance of the evidence that:

(1) he/she suffers from a chronic, debilitating medical condition;
(2) that greater than 6 plants cannot possibly address the seriousness of the medical condition; and
(3) that the doctor who made this recommendation did so based on careful application of medical judgment in the context of a bonafide patient- physician relationship.

This defense is almost always a complete fraud and the doctors who provide such expanded plant count recommendations do so only for an additional fee. Again, premising a defense on a foundation of medical fraud almost invariably results in conviction.

In my numerous meetings where such ideas are discussed, I typically state that “all people who qualify for medical marijuana are presumptively disabled. In order to justify an additional plant count, you would have to prove that you were more profoundly disabled than all of the other disabled patients who qualify for a medical marijuana recommendation. For instance, if I have chronic back pain, I take ibuprofen. If I have Stage 5 cancer, I have a morphine drip. The expanded plant count is the equivalent of a morphine drip and the medical condition must be commensurate with Stage 5 cancer.”

The response I usually get is “I make edibles.” I respond “there is no choice of consumption defense. And, the police know that edibles are made with trim. They also know that a competent grower gets approximately 1 pound per plant. Accordingly, even if you make edibles, 6 plants is more than sufficient. So, the assumption is that you sell marijuana for a living.” As stated before, only strict compliance with Amendment 20 or 64 has a chance of success a trial. If the police discovery cash, substantial quantities of marijuana, evidence of sales (typically people are using their smart phones or computers to transact the marijuana making proof of criminal activity quite simple) or any other indicia of distribution, then even a perfect medical necessity defense would fail. I have had numerous such instances.

IV. Law enforcement crackdown and cooperation with federal agencies.

Also, the police are under tremendous pressure to stop the hundreds of pounds of marijuana leaving the state each day. The fact that such copious quantities of marijuana leave the state each day has resulted in lawsuits from our neighboring states and there is now lock step cooperation with federal law enforcement to which there is no defense whatsoever to federal criminal prosecution. I have worked on several cases in which local law enforcement was working with the Attorney General, who was working with the United States Attorney General, DEA and the IRS (for tax evasion of an illegal enterprise).

V. Landlord liability and civil forfeiture.

Next, the question of prosecution and forfeiture for landlords must be addressed. At the outset, the crime of cultivation includes both the cultivation itself, as well as permitting a property owned by a person to be used for such purposes. CRS 18-18-406(3). There is also a likely charge of conspiracy if the landlord is aware and permits the cultivation. CRS 18-2-201. That means the landlord is jointly responsible for any and all crimes committed at the property. Civil forfeiture of the property is quite common and often is handled by federal authorities. The only defense to forfeiture is the “innocent owner” defense in which the landlord does not know, nor have any reason to know about the marijuana activities. I have had cases dismissed only to have the property contemporaneously seized by federal authorities.

Marijuana Regulations Completed, a few points.

Since my last blog entry, there have been a few changes to HB-1317, the bill which regulates retail marijuana businesses. The bill has now passed both the House and Senate and is on the Governor’s desk for his signature. Once that is completed, the bill will become a law (those of you familiar with School House Rock already know that!). The changes include:

1. There will be a 9 month waiting period for new businesses, instead of 90 days. If you do not already own a MMJ business, you will be able to apply on 9/1/14. Prospective business owners can file a notice of intent to own a MJ business after 1/1/14 and must provide a deposit that will be applied to the application fee. The deposit amount is not specified.
2. The bill expressly outlaws the “collective model” and requires that any sale or other distribution of MJ be done only by a licensed MJ business.
3. The MED is required to implement a “seed to sale” tracking system for all MJ sold. This idea was previously shelved by MED.
4. No delivery of MJ.
5. There is a THC content limit for edible MIP products.

There are two other bills that were passed, HB-1318 and SB-283. Here 5 things you should know about each of them.

HB-1318, “the tax bill”:

1. There is a 15% excise tax that will be assessed for wholesale sales of MJ to Retail Marijuana Centers (RMC).
2. The excise tax will be based on an average market price established by the State. The tax must be collected by the wholesaler and a report for such sales filed once a month.
3. The excise tax will apply to the transfer of MJ from the grow to the retail center even if the business owns both the grow and retail center.
4. There is a 10% State sales tax for MJ sold by the RMC. This can be raised to 15% without voter approval.
5. The sales tax will be shared with local governments, but local governments are also permitted to impose additional local taxes.

SB-283, the miscellaneous bill:

1. Local governments may ban the use of butane and compressed gas for use in extraction.
2. The bill creates a responsible vendor program that will require training. There will be created a “certified trainer” and all vendors must be certified.
3. Marijuana business contracts shall not be void despite the federal argument that all such businesses and their contracts are illegal.
4. There will be no exception to the state smoking laws that will permit a private club or other such business to permit MJ use.
5. No open containers of MJ in vehicles. The MJ must be in an unopened, sealed container or be placed in the trunk of your car.

State Rules on Amendment 64 Completed

The State of Colorado recently passed HB-13-1317, 1318 and Senate Bill 13-283.  The bills create a licensing a regulatory scheme for recreational marijuana businesses and address the interaction with medical marijuana businesses.  The bills can be viewed in their entirety here:

http://www.leg.state.co.us/clics/clics2013a/csl.nsf/fsbillcont3/807A035CD583C95E87257B1F005CDB59?Open&file=1317_01.pdf

20 things you should know about the bill:

1. The Medical Marijuana Enforcement Division (MMED) will be changed to the Marijuana Enforcement Division (MED) and  will regulate both MJ and MMJ.
2. Existing MMBs can apply to convert after 10/1/13 and the conversion application is $500.  The businesses can begin operation as a MJ business after 1/1/14, assuming that local approval is also obtained during this timeframe.  The MMB may continue to operate as a MMJ business until such time as the application is approved at both the state and local level.  It is not clear whether the businesses themselves or the people who are currently licensed will be permitted to convert.�
3.  Everyone else can apply 9 months later, i.e., 9/1/14 and the application is $5000;
4. There is no vertical integration requirement for recreational marijuana businesses (RMB) after the first 9 months, i.e., 9/1/14.  After that, growers can be “grow only” businesses and sell to all RMBs and to infused product manufacturers.  RMBs can sell to anyone over the age of 21.  Existing MMJ business cannot be separated into a cultivation operation and retail sales operation.
5. Local approval still required for all MJ and MMJ business licensing.
6. In order to work at and/or manage a RMB, the person must be a Colorado resident and a person must be a 2 yr. state resident to own such a business.
7.  The RMB can sell up to ¼ oz  to non-residents over the age of 21.
8. The RMB cannot sell ANY product containing alcohol or nicotine.  This may impact some MIPs who make alcohol-based tincture.�
9. All MJ must be packaged and sealed at the point of sale in a non-transparent container.  There are also stringent labeling standards, including THC and cannabinoid content.
10. MED will issue further regulations by 7/1/13.
11. There is a 1000 ft. buffer between schools, alcohol and drug treatment facilities.  The definition of a school includes a residential child care facility.
12. Once the MMB elects to convert to a RMB, the plants and product automatically become retail plants and product.  It i possible that there will be limits on the number of plants or amount of product the business can possess.  The City of Boulder is proposing its own limits (500 plants) and the state law supports such limitation decisions by local licensing authorities.
13. A MMB can operate both a medical and non-medical MMB at same location only with local approval do so and would be required to create physical separation between the two businesses, including separate entrances.
14. An employer is not required to tolerate MJ use in the work place and each business is free to set its own drug policy, including zero tolerance.
15. There are a lot of lot of marketing prohibitions and you should carefully review this section if you plan to advertise.
16. There will be created a licensure class system. The licenses could be issued based on square footage, number lights, amount of lumens, the measured “lit canopy,” the number of plants or combination. Stay tuned.
17. MED is permitted to limit the number of licenses issued and also gives this power to local authorities.
18. Failure to pay taxes can result on denial – be careful to be current with the IRS.
19. The lifetime drug felony ban on ownership was changed to 10 years from the date the matter was concluded, including the completion of probation or parole.
20. Licensee may move his permanent location to any other place in Colorado with local approval.  It is unclear whether this can be made part of the conversion process or is to be done after the process is complete.

Colorado Amendment 64 and the Federal Government

As you know, Colorado voters passed Amendment 64, which permits limited adult possession of marijuana and the establishment of marijuana retail businesses.
However, the federal government responded with “saber rattling” and a stern warning that marijuana is still illegal federally. Is the federal government really ready for a state’s rights showdown? This seems unlikely.

The passage of Amendment 64 was a bi-partisan effort that united conservatives like Tom Tancredo, law enforcement and democrats. State’s rights is good politics and politicians would be wise to heed the call to end marijuana prohibition. The voters in Colorado grew tired of waiting for politicians to end the war against marijuana and took matters into their own hands. The complete legalization of marijuana is inevitable.

I encourage everyone interested in this issue to contact their federal representatives and let them know it is time to end the disparity between state’s rights and the federal prohibition against marijuana. I am working with the representatives for Colorado and am hopeful we can make Colorado voters’ dream a legal reality.

Colorado Amendment 64

Dear Friends,

As you know, on Tuesday, Colorado voters passed Amendment 64 which decriminalizes adult possession (to a certain degree) of marijuana and provides for the establishment of MJ retail businesses. I predict that within a year or so of that program becoming fully operational, the MMJ business as we know it will be virtually extinct. Why would a person suffer the indignity of going to a doctor, submitting paperwork to the state and be placed on a registry if it was no longer necessary? I predict they will not.

Accordingly, MMJ businesses, caregivers and patients need to begin preparing for this inevitability. Fortunately, MMJ businesses will receive preference in licensing for a MJ business. We are prepared to help you with this transition.

I will be working with the local and state government, as well as the federal government to make Colorado’s dream a legal reality. It is my goal to take MJ out of the shadow of fear of state and federal prosecution. I will keep you apprised of my efforts, successes and any roadblocks I encounter along the way. I aim to finish what we started three years ago with the MMJ regulatory efforts.

If you would like to discuss how Amendment 64 affects you, your business, your patient rights, etc., we are happy to meet with you. Please contact my paralegal, Lisa, at extension 4 to schedule a meeting.

Finally, we are preparing to launch a new website dedicated to MJ laws and will let you know when it is online.

Sincerely,

Jeff Gard